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Old 10-08-2011, 01:17 AM
 
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Quote:
Originally Posted by Skydive Outlaw View Post
The whole mortage interest deduction also created some credit inequality for a period of at least 3 decades in this country where if a homeowner took money out of their house without selling it when they refinanced, they essentially paid it back and could deduct the interest. Someone that did not own a house if they borrowed the same amount of money from a bank would have to pay it back with interest and it was not deductible. The cost of borrowing money was then less expensive for someone that "owned" a house.

You might say it was even 'worse' or more 'unequal' than that. A homeowner who pulls out cash by refinancing is typically paying somewhere in the neighborhood of 6% interest on that money.

A renter who borrows the same amount of money cannot secure a loan with a house he doesn't own, so he's typically going to pay 12-18 percent interest (or more) for the same amount of money (if he can even borrow the same amount as a homeowner).

So the inequality is considerably greater than that of just tax deductibility.

I suspect this is one of many reasons that homeowners generally have more than 2x the income and 10x the wealth of renters. Many small business startups have been funded by homeowners pulling cash out of their homes, an option completely unavailable to renters.
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Old 10-08-2011, 01:51 AM
 
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Originally Posted by markg91359 View Post
Whenever someone complains about the mortgage interest deduction, the first question I always have for them is what has your experience been as a renter and with rental property? My experiences were very illuminating. In short, what I generally saw was a pattern where renters typically felt no incentive to put anything into their property at all. There is a great percentage of rental property in the USA that is badly neglected. It didn't start that way. It largely ended up that way because of ordinary "wear and tear" that neither landlords, nor tenants felt a compulsion to fix. I'm referring to broken windows that get taped rather than replaced. I'm referring to light fixtures in which no one bothers to replace bulbs. I'm referring to peeling paint on walls that no one paints over. Sometimes furnaces don't get fixed leading to dangerous situations that can involve carbon monoxide poisoning or accidents.

Property that is owned is not always better cared for than rental property. However, the pattern I've observed over my fifty year life is that it is generally much better cared for. That simple reason can be characterized in one sentence. Its called "pride of ownership". I believe the state and the public do have an interest in seeing that property is kept in some kind of a safe and manageable condition. I believe that we also have an interest in encouraging people to take pride in their homes and stay in one place longer. That's the sort of thing that helps build communities. It makes communities more than simply a place where people sleep at night.

Finally, the deduction encourages new home construction and this puts construction workers and realtors to work.

Go ahead and try to get this deduction repealed. You'll be met by hundreds of powerful lobbyists for real estate companies and the home construction industry. They'll oppose you and I will too. Rightfully so, because tax simplification is continuously overstated as a value in society.

Renters typically have no incentive to put anything into their property at all because the law and the landlord-tenant relationship provide disincentives. Leasehold improvements made by a tenant belong to the landlord, so the benefit such improvements provide to the renter last only as long as does his tenancy. As long as I can't lock in my rent for more than 12 months, I lack the stability of tenure and it makes no sense to put money and work into a property if I'm going to be priced out of it at the end of the year. Give me a long-term deal and now I have an incentive to put something into the property. In my experience, the longest residential lease I've ever heard of is two years, and that only in New York City. Landlords prefer short-term leases because it allows them the flexibility to exploit changing market conditions. (e.g. rents typically rise over time, so you don't want to lock in rent for more than a year or two, and a long-term lease can be be a big burden to a landlord looking to sell).

I've heard the National Association of Realtors claim that home sales generate lots and lots of jobs, as homeowners put lots and lots of money into their homes. Obviously, landlords are not doing their fair share to support the economy, since they put far less money into their properties. How is that the fault of renters when (see above) renters have only disincentives to improve the property?

I have been advocating the right of Americans to buy homes they can afford - typically smaller than what is currently allowed. Then you would see renters become homeowners and finally have an incentive to improve their properties.

To encourage people to take pride in their homes and stay in one place longer, renters need the same sort of protection enjoyed by homeowners against being taxed out of their homes. California's Proposition 13 locked in assessments for homeowners so they could stay in their homes for 50 years (or more) without being taxed out of their homes, but renters who try to stay in their homes have no protection under Prop 13 if their landlords sell. Many other states have similar protections for homeowners which do not extend to renters. Give renters the same encouragement as homeowners to stay in their homes.

Many states tax rental property at higher rates than owner-occupied homes. This clearly promotes renters being taxed out of their homes and discourages long-term stability. Stop taxing rental property at higher rates than what homeowners pay.
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Old 10-08-2011, 01:59 AM
 
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Originally Posted by jackmccullough View Post
Renters pay property taxes. Who did you think pays the property taxes, the landlord?

Actually, it appears that many people believe that renters magically escape paying property taxes.

To these people I suggest that if they think renters are getting such a good (and horribly unfair to homeowners) deal, they should sell their homes and rent instead.

These people NEVER like that suggestion.
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Old 10-08-2011, 02:09 AM
 
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Originally Posted by RememberMee View Post
Property taxes are a local matter that is not affecting federal government policies. Do you want to say that if I rent a house, it's an owner not me who pays property taxes? Such remarkable altruism Home sale gains are not taxable by Federal Government. It doesn't sound right either. If federal government subsidizes your mortgage, should it have a small piece of a pie also?

Also, it's something like $10,000 per pupil per year in my school district (probably more). If a home owner with 2 children doesn't pay $20,000 in property taxes per year guess who makes up the difference?

The National Multi Housing Council, a nationwide organization of big apartment owners and managers, has noted that single family homes tend to generate about twice as many kids (as a rate per 100 homes) as do apartments/condos. (This is partly because houses tend to be considerably larger and have more bedrooms than apartments.)

This seems to make a lot of sense; in my experience, having your first child tends to give families a huge incentive to buy a home, and most of the families I have known bought their first home after their first child was born and before that child entered school.
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Old 10-08-2011, 03:33 AM
 
85,304 posts, read 82,827,155 times
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Quote:
Originally Posted by freemkt View Post
Actually, it appears that many people believe that renters magically escape paying property taxes.

To these people I suggest that if they think renters are getting such a good (and horribly unfair to homeowners) deal, they should sell their homes and rent instead.

These people NEVER like that suggestion.
i love that suggestion and is exactly what we have done. we sold our primary home and rent and now we are selling our second home .best thing we ever did. only real estate i own is investment properties and even those we are selling off as last thing i want to be is a landlord through retirement.

from a shear numbers point the biggest pile of money is gained by renting and investing elsewhere. today the money generated by our investments will pay our rent for decades to come hopefully.

here in nyc i bought our first home in 1987 for 169k and sold it in 2004 for 335k.. that same money in a bunch of nothing special fidelity funds is 1.7 million . enough to subtract out decades of rent that would have been paid and enough to have bought 2 homes today.

by the way if one chooses to rent but invest elswhere and use borrowed money like the homeowner than margin interest is deductable the same as mortgage interest.

Last edited by mathjak107; 10-08-2011 at 04:04 AM..
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Old 10-08-2011, 03:38 AM
 
85,304 posts, read 82,827,155 times
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Quote:
Originally Posted by freemkt View Post
Renters typically have no incentive to put anything into their property at all because the law and the landlord-tenant relationship provide disincentives. Leasehold improvements made by a tenant belong to the landlord, so the benefit such improvements provide to the renter last only as long as does his tenancy. As long as I can't lock in my rent for more than 12 months, I lack the stability of tenure and it makes no sense to put money and work into a property if I'm going to be priced out of it at the end of the year. Give me a long-term deal and now I have an incentive to put something into the property. In my experience, the longest residential lease I've ever heard of is two years, and that only in New York City. Landlords prefer short-term leases because it allows them the flexibility to exploit changing market conditions. (e.g. rents typically rise over time, so you don't want to lock in rent for more than a year or two, and a long-term lease can be be a big burden to a landlord looking to sell).

I've heard the National Association of Realtors claim that home sales generate lots and lots of jobs, as homeowners put lots and lots of money into their homes. Obviously, landlords are not doing their fair share to support the economy, since they put far less money into their properties. How is that the fault of renters when (see above) renters have only disincentives to improve the property?

I have been advocating the right of Americans to buy homes they can afford - typically smaller than what is currently allowed. Then you would see renters become homeowners and finally have an incentive to improve their properties.

To encourage people to take pride in their homes and stay in one place longer, renters need the same sort of protection enjoyed by homeowners against being taxed out of their homes. California's Proposition 13 locked in assessments for homeowners so they could stay in their homes for 50 years (or more) without being taxed out of their homes, but renters who try to stay in their homes have no protection under Prop 13 if their landlords sell. Many other states have similar protections for homeowners which do not extend to renters. Give renters the same encouragement as homeowners to stay in their homes.

Many states tax rental property at higher rates than owner-occupied homes. This clearly promotes renters being taxed out of their homes and discourages long-term stability. Stop taxing rental property at higher rates than what homeowners pay.
homeowners are protected against being taxed out of their homes?
obviously you never heard of long island ny . taxes here are driving people out of long island.
15-20k is the yearly tax on just a small home. some pay close to 30-40k a year.

Last edited by mathjak107; 10-08-2011 at 04:08 AM..
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Old 10-08-2011, 05:11 AM
 
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Originally Posted by RememberMee View Post
Simple question. Why one can deduct mortgage interest from their taxes and why I can't deduct my rent? Who made this decision and when? Why? Is there any basis in Adam Smith, Karl Marx, Keynes, Bible... for this housing discrimination? Why the ones who pay for their house with cash are also penalized by the government? They don't work for their house as hard as the mortgage paying crowd?

Naturally, the larger your mortgage the more deductions you have. I'm guessing that lion's share of mortgage deductions is claimed by very financially blessed individuals who could very well survive without this government handout for the rich home owners & bankers. Actually, many of them could pay for their homes upfront with cash if not for "government incentives". If there is a "breaking point" above which it is financially advantageous to take a loan out for purchase rather than to pay with cash, there is something rotten in Denmark. The idea is to cut interest on mortgage to minimum (using tax breaks) and to invest $ at market rates elsewhere, all the budget deficits be damned. Obviously, low wage mortgage payers don't "squeeze" nearly as much $ from their tax breaks as top 10%. The question is, why renters and savers like me should subsidize gated community dwellers?

From what I know many businesses prefer to lease equipment instead of owning because of the massive tax loopholes government offers. Some companies setup fictional in the truth and real&legal as far as IRS is concerned LLCs that buy and "lease" equipment to the "mother" corporation. If this is profitable, what is the "public" benefit of it all?
you have a distorted view as to the deduction.

spending 4 dollars over the price of the house to get back one isnt a bonus its an expense. having a mortgage and getting back one of those interest dollars makes you poorer not better off.

make any investment in anything with borrowed money and its no different, you can rent and borrow money to invest and write the interest off. its not only something a homeowner gets.

ask yourself this:

if instead of buying a home you decide to rent and to buy an investment property via a mortgage instead and if that property generated more in income than your paying in rent are you at a diadvantage to the homeowner financially? of course not in fact you are ahead. dont you still have the same write offs of interest and taxes ? of course you do

what if instead of buying a rental property you bought other assets instead which generated even more of an income .? what if you borrowed money to do it just like the homeowner. are you at a disadvantage to the homeowner? no your not.. you still write off expenses and interest just the same.


interest paid for appreciating assets gets a write off, homeowner or renter you dont get a deduction for your immeadiate cost of housing namely rent or the purchase price of the house.

Last edited by mathjak107; 10-08-2011 at 05:41 AM..
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Old 10-08-2011, 04:14 PM
 
85,304 posts, read 82,827,155 times
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Quote:
Originally Posted by freemkt View Post
You might say it was even 'worse' or more 'unequal' than that. A homeowner who pulls out cash by refinancing is typically paying somewhere in the neighborhood of 6% interest on that money.

A renter who borrows the same amount of money cannot secure a loan with a house he doesn't own, so he's typically going to pay 12-18 percent interest (or more) for the same amount of money (if he can even borrow the same amount as a homeowner).

So the inequality is considerably greater than that of just tax deductibility.

I suspect this is one of many reasons that homeowners generally have more than 2x the income and 10x the wealth of renters. Many small business startups have been funded by homeowners pulling cash out of their homes, an option completely unavailable to renters.
a homeowner with no equity cant take money out either.. a renter with other assets can take a loan against those other assets at favorable rates or margin rates.

your trying to compare a secured loan rate with an unsecured loan rate and it has nothing to do with being a renter or a homeowner .it can apply to both cases . if you have assets you can get favorable loan rates .
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Old 10-08-2011, 07:12 PM
 
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Quote:
Originally Posted by mathjak107 View Post
homeowners are protected against being taxed out of their homes?
obviously you never heard of long island ny . taxes here are driving people out of long island.
15-20k is the yearly tax on just a small home. some pay close to 30-40k a year.

Yes, property taxes are a huge burden in NY and NJ, but if you go around the country to other regions, you will find many states have caps on increases in assessments and/or property taxes, as well as other property tax preferences for homeowners (e.g. in Texas, homeowners over 65 are exempt, according to a recent thread here); there are property tax exemption or deferral programs for seniors or disabled or veterans in many states).

Usually when most homeowners believe property taxes are too high, they initiate a ballot proposal to fix the problem (not an option in NY and NJ), or, in the absence of that option, pressure legislators to fix the problem. The usual solution is to (often deeply) cut property tax and increase some other tax, usually the sales tax. This always solves the problem on the backs of renters, because they don't benefit from the property tax cut (landlords pocket it and laugh all the way to the bank, plus property tax cuts make rental property more valuable, so the next buyer can't reduce rents because he has a higher mortgage payment to make) but renters sure do pay the higher sales tax every time.
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Old 10-08-2011, 07:19 PM
 
33,031 posts, read 23,965,818 times
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Originally Posted by mathjak107 View Post
a homeowner with no equity cant take money out either.. a renter with other assets can take a loan against those other assets at favorable rates or margin rates.

your trying to compare a secured loan rate with an unsecured loan rate and it has nothing to do with being a renter or a homeowner .it can apply to both cases . if you have assets you can get favorable loan rates .



Oh. My. God.

The median net worth of renters is something in the neighborhood of $2,000 to $4,000. What kind of a loan and interest rate is THAT going to get you.
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